UPDATED 12:50 EST / NOVEMBER 05 2010

Clearwire in the Midst of Layoffs Due to Financial Drain

Wireless Internet service provider Clearwire has gone into crisis mode recently with significant losses in revenue from a lack of financing and constantly extending costs. To stave off financial doom, the company is cutting its workforce by almost 630 people (15% of 4,200 employees). They’re hoping to stay afloat while they work out a better business plan to take advantage of their newly minted 4G networks.

According to the Wall Street Journal, things are not currently looking good for the wireless provider,

Clearwire faces a cash crunch at the end of the year, illustrating the high costs associated with building a brand-new 4G network. As a result, the company is cutting 15% of its 4,200 employees, suspending its launch in markets including Denver and Miami, and delaying the introduction of a branded smartphone.

The moves are expected to save $100 million to $200 million this year, and a similar amount through the first half of 2011. Chief Financial Officer Eric Prusch said on a conference call Thursday the company has enough cash to last through the middle of next year.

Recently, Clearwire initiated limited 4G coverage in Los Angeles and New York; this drew in a great deal of new customers—possibly also from their affiliation with Sprint-Nextel—however, their moves into the 4G market have been severely straining their capital to the point of near insolvency. They are hoping that Sprint, which owns the lion-share of the company, will back them as they move forward.

For a while now, Sprint and Clearwire have been the forefront of 4G rollouts. The resulting fanfare and boost in 4G accessible smartphones have put a lot of demands on these networks. However, this has also put a great deal of pressure on companies like Clearwire to get to market first, which adds a great deal of customers, but a lot more costs.

To actually stay afloat, not only will the wireless provider need to cut costs dramatically, they’ll have to get extra investment backing, and to do that they’ll have to show that their boom in customers will deliver the goods for investors. There’s no reason to think that it won’t, with the expanding market for 4G phones, the fact that Clearwire has rolled out (even limited) 4G networks, and the obvious customer interest in it shows that while they’re feeling the bite now, they may be able to bounce back.

The biggest problem they face currently is from competitors using this predicament to marshal their own 4G forces and eat up more of the lead that Clearwire and Sprint has on them. Companies like AT&T who also have 4G and LTE plans for mid 2011 and will prove to be a solid rival when they step fully into the market.

Clearwire will want to have their grip tightened by then or they’ll be in for a very rough ride, even with their current lead.


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